The expansion of high-technology and distribution focused industrial activities and the decentralisation of many office-using activities from city centres as well as a robust development cycle over the late 1990s and early 2000s have been major drivers in this regard. There is an entrenched split between the active property markets in the north, and the less active property markets in the south of the metropolitan area. These developments have stimulated worsening traffic congestion and inadequate road infrastructure in the premier nodes, especially along east-west linkages.
A major characteristic of the Johannesburg property market is the remaining division between the wealthy and active northern nodes, and the under-developed and less commercially active southern nodes.
It is important to recognise that nodes and regions within Johannesburg are different markets that cater to different needs and different sectors, and provide unique functions. Nodes themselves are rapidly changing and this has a marked impact on property.
The excitement surrounding new residential developments in the region has been one of the major forces impacting on the retail property supply chain. Non-residential supply is increasing with strong supply trends emerging from industrial and retail space. There has been an encouraging increase in the retail supply in Soweto.
Property-led regeneration has been an important tool in area-based economic initiatives. Direct and indirect stimulation of construction activity is seen as a means to boost economic growth and inward investment, by providing commercial and industrial floor-space, and improving the physical environment. The impact of local government efficiency and policy on real estate indicators, such as prices, can be so strong that it dominates other factors. As a result, deteriorating services, crime and high taxes in many cities have depressed land and property prices.
The depreciation and development incentives afforded by government of late are expected to boost property investment in the Johannesburg inner city in general. This is especially true since the introduction of the Urban Development Zone tax incentive in the inner city.
The provision of bulk infrastructure plays an important role in the spatial distribution of property developments, since property accommodates people and their variety of functions. No existing or new fixed property can function without bulk infrastructure. International experience suggests that development in non-priority areas are often required to finance their own infrastructure. The adoption of an urban edge along with the associated bulk infrastructure costs or penalties will no doubt begin to take effect on the spatial development pattern of greater Johannesburg.
Another important infrastructure dynamic shaping the city's property landscape remains the Gautrain project and the implications this holds for multi modal transport and commercial property nodes.
The levels of economic activity and the location decisions of companies drive the demand for commercial property. In the case of Johannesburg, the business and financial services sector has been at the forefront of growth. Some important fundamental improvements to the office market are taking shape after a number of years of oversupply and poor returns as a result of negative rental growth driven by a competitive environment that placed tenants in strong negotiating positions.
On an aggregate basis, net take up in decentralised Johannesburg is growing. The Johannesburg CBD remains an important arena and it is clear that general investor sentiment has improved. Conditions supporting a commercial property environment continue to be favourable.
Total office stock in the Johannesburg CBD remains the largest in the country at nearly 2-million m², although in some parts of the CBD, the age of the buildings and the general lack of maintenance have resulted in the office environment becoming unattractive. Other parts of the CBD have actively regenerated.
There has however been little new commercial property development in the CBD for over a decade, with the exception of the owner-occupied ABSA campus development of some 40 000m2. Gross A-grade office rentals are some of the lowest available at between R19/m2 and R38/m2, while the prevailing vacancy rate stands at around 22 percent.
Competitive advantages include the inner city's position as a transport hub and its excellent accessibility; good (but aging) infrastructure; lower rentals and rates; and public investment. Weaknesses and threats are 'sinkholes', crime, low property values and a history of poor management.
'Sinkholes' are properties that are slummed, abandoned, overcrowded, poorly maintained, or used for illegal or unsuitable uses, such as shebeens, some clubs, drugs, sweatshops, panel beaters in homes, amongst others.
The mirror image of sinkholes is 'ripple ponds' - providing a ripple effect investment. These lift the adjacent areas by providing an incentive to private investment. Like sinkholes, they can be private (Bank City and Gandhi Square), and public (Metro Mall, the Newtown developments and Constitution Hill).